The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) Dirt Bikes Total $ 928,000 $270,000 471,000 114,000 457,000 156,000 69,900 8,500 44,500 20,900 114,200 185,600 Mountain Racing Bikes Bikes $ 406,000 $ 252,000 202,000 155,000 204,000 97,000 40,900 7,700 20,500 15,900 35,500 50,400 122,300 40,200 38,500 81,200 54,000 414, 200 123,600 168,300 $ 42,800 $ 32,400 $ 35,700 $(25,300) Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented Income statement that would be more useful to management in assessing the long-run profitability of the various product lines.
The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) Dirt Bikes Total $ 928,000 $270,000 471,000 114,000 457,000 156,000 69,900 8,500 44,500 20,900 114,200 185,600 Mountain Racing Bikes Bikes $ 406,000 $ 252,000 202,000 155,000 204,000 97,000 40,900 7,700 20,500 15,900 35,500 50,400 122,300 40,200 38,500 81,200 54,000 414, 200 123,600 168,300 $ 42,800 $ 32,400 $ 35,700 $(25,300) Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented Income statement that would be more useful to management in assessing the long-run profitability of the various product lines.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and
expenses for the past quarter follow:
Sales
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
Advertising, traceable
Depreciation of special equipment
Salaries of product-line managers
Allocated common fixed expenses*
Total fixed expenses
Net operating income (loss)
Racing
Bikes
Dirt
Total
Bikes
$928,000 $270,000 $ 406,000 $ 252,000
471,000 114,000 202,000
155,000
457,080
156,000
204,000
97,000
69,980
44,500
114, 2980
185,600
40,900
20,500
7,780
15,980
38,500
35,500
81,200
50,400
414, 200 123,600 168,300
122,300
$ 42,800 $ 32,400 $ 35,700 $(25,300)
Mountain
Bikes
8,500
20,900
40,200
54,000
"Allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not
the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.
Required:
1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?
2. Should the production and sale of racing bikes be discontinued?
3. Prepare a properly formatted segmented Income statement that would be more useful to management in assessing the long-run
profitability of the various product lines.
Complete this question by entering your answers in the tabs below.
< Required 1
Required 1 Required 2 Required 3
What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?
Financial (disadvantage) per quarter
Required 2 >
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